Saputo Inc., Canada’s largest dairy processor, bettered two rival offers for Australia’s Warrnambool Cheese & Butter Factory Co., agreeing to pay A$449 million ($432 million) to tap growing demand in Asia.
Saputo raised its bid to A$8 a share, winning the support of the target’s board. It compares with Murray Goulburn Cooperative Co.’s bid of A$7.50 and is 18 percent more than a proposal from Bega Cheese Ltd., the largest shareholder in the Victorian dairy company. Warrnambool climbed 3.3 percent to a record A$8.42 in Sydney.
“It’s a very strategic asset, whether it’s for Saputo to leverage the China dairy boom, or for Murray Goulburn and Bega Cheese to access the substantial synergy benefits of bringing the companies together,” Belinda Moore, an analyst at RBS Morgans Ltd. in Brisbane, said by phone. “I wouldn’t be surprised to see the bidding war continue.”
The bidders are seeking to add Warrnambool’s production and export infrastructure to meet rising demand in Asia as China, the world’s most populous nation, sets new records for milk-powder imports and dairy demand in India outpaces local production. The price of exported milk powder will this year surge 33 percent, butter rise 16 percent and cheese climb 12 percent, according to a Oct. 9 filing by Warrnambool.
Warrnambool, which makes brands including Sungold and Warrnambool cheddar as well as supplying milk to make Philadelphia cream cheese, relies on exports for most of its sales and last year made 143,000 metric tons of dairy produce including cheese, milk powder and infant-formula ingredients.
The “board takes comfort in Saputo’s assurances to suppliers and employees, as well as its intentions to invest in WCB’s assets and pay a leading competitive milk price,” Chairman Terry Richardson said in the statement on the bid.
Saputo will fund the purchase using a C$500 million ($480 million) three-year bank term loan, it said in a separate statement.
Bega Cheese holds 18 percent of Warrnambool and Murray Goulburn holds 17 percent, according to data compiled by Bloomberg.
New South Wales-state based Bega would receive about A$82 million in cash if it accepted Saputo’s new offer and could use the funds to pursue other targets, RBS Morgans’ Moore said. “I expect it will continue on its path of M&A, Warrnambool is not its only option,” she said.
Murray Goulburn remains committed to its offer and expects resolving Warrnambool’s future ownership “will be a long process,” the Melbourne-based company said today in a statement. It urged the Foreign Investment Review Board to delay any decision on Saputo’s offer until its own application to the Australian Competition Tribunal has been considered.